Why Don’t We Care About Water?

[00:00:00] 95%. [00:00:01] That's how much of a jellyfish is made of water. [00:00:04] It's kind of ironic then that this August, a swarm of these strange creatures shut down four French nuclear reactors by blocking the very cooling water that the reactors rely on. [00:00:16] And this wasn't just an isolated event. [00:00:18] Europe's nuclear fleet lost more than 400 million euros in power this summer as rivers seas ran too warm, they ran too low, or they just clogged with jellyfish. [00:00:38] I am Reece Sisdel. This is the Future of Water in which we talk about all the ways which companies, utilities and people are addressing the challenges and opportunities in water. This is episode 126. [00:00:51] And yes, sorry to say that it's just me, no guests, no water experts, but frankly, no one wanted to talk to me this week. Actually, I wanted to give everyone a break in the last days of summer. So you're stuck with my voice this time around. [00:01:09] Don't go just quite yet because you're going to miss out on a question that's been bothering me for quite some time. [00:01:15] Why does no one care about water? [00:01:18] But before we get to that, something caught my eye this past week on August 12, while I was on vacation, quite honestly. So it's a couple days behind. Ecolab announced a $1.8 billion deal to acquire Avivo's electronics business. Avivo, based in Montreal, is known for advanced water treatment systems, in this case particularly for the semiconductor sector. [00:01:44] Ecolab, with about $16 billion in annual revenues under its belt, in 2024 it will be folding Avivo's electronics business into its growing light industrial water platform, positioning itself really more firmly in the high tech space. So what are my couple takeaways from this at least? [00:02:04] Well, Ecolab, for lack of a better way to put it, is doubling down on high tech, that is semiconductors, data centers and all the other parts of that sector. The acquisition adds about $500 million of revenue and about 200 references in high purity or ultra pure water services, bolstering Ecolab's footprint in this space. I think the references are pretty interesting because a big part of Ecolab's business and revenues, or business model, should I say, is recurring revenue through ongoing services thereafter. So they take the razor blade approach, sell the razor blade and then they're selling the services and all the pieces and kit that go with it thereafter. So I think this lines up really well with them, particularly as they focus on the high tech sector. [00:02:54] Avivo, on the other hand, by nature of this divestment, is a water quality player. Now so by divesting electronics at what seems quite honestly to be the peak of the high tech sector, Aviva's new focus is going to be on membranes and water quality. This also includes things like emerging contaminants and pfas. It certainly sees a long term play in advanced treatment. It's certainly less consolidated than, let's say, semiconductors. If you're in the semiconductor space, it really falls on a handful of players building these gold plated projects. And so I think maybe Avivo saw this and saw the opportunity to get out. But also Skion, which owns Ovivo and it has owned a stake in the company since 2016, also sees the high market and the opportunity for selling at a premium. So at the time that it purchased a vivo in 2016, vivo was valued at about $142 million if I recall. [00:04:01] So selling it at 1.8 billion in 2025 seems like a pretty good deal. [00:04:07] Lastly, scale matters, and that is scale matters in high tech, water and the high tech sector. [00:04:15] With semiconductor fab delays hitting the industry for various reasons, we all read the news. You see what's happening with intel or Samsung. There's a bit of ebb and flow of the project activity and the financing and when these projects are going to roll out. [00:04:34] But the scale of these deals in the volatility really underscores how global players like an ecolab and rivals like Veolia are better positioned than maybe smaller players to absorb the volatility and capture the growth in the semiconductor supply chain. [00:04:52] And the other part of this is, and thinking about Avivo and selling now, the semiconductor sector build out over the next, it's really going to be over the next decade in the US and Europe. I'm not saying there's not going to be more activity thereafter, but I think the real push, partly because of the chips act in both regions of the world, is driving a big chunk of this. And then thereafter it's probably going to slow down a bit. So there may be longer term opportunities and things like water quality, which they're focused on. [00:05:27] So with that being said, let's change gears a little bit. So today I wanted to dig into an issue that honestly feels both urgent and overlooked and that is of all things, the future of water. [00:05:41] The reason I'm talking about it now is that Bluefield has just released a new presentation. It's up on our about us [email protected] it's a presentation and it's about the one thing we can't replace. And that is water and what we think about it, or should think about it. And here's the truth. [00:06:01] Many of us, particularly in the developed world, have had the luxury of not thinking about it. We turn on the tap and the water flows. We flush the toilet and it disappears. [00:06:14] Water has been so reliable for so long that it's faded into the background, but for all the wrong reasons, and it seems to be rearing its ugly head little by little. [00:06:28] So here in the doldrums of summer, thought it'd be a good time to maybe step away from the facts and figures of M and A and company strategies and water infrastructure forecasts, stuff we usually talk about on this podcast, and focus on the bigger question, why water matters. Or more importantly, why should it matter? [00:06:47] So let me start with this. [00:06:49] Why don't we care about water? [00:06:53] We say we care about water when it comes to kids drinking safely or families out on the lakes and rivers, but our choices suggest otherwise. [00:07:06] Because water isn't just about drinking or swimming. It's embedded in almost everything we consume. [00:07:12] And maybe even do an almond. [00:07:15] 3.2 gallons of water per almond. And I just ate probably 30 this morning. [00:07:23] A cup of coffee. 3.6 gallons is needed for a cup of coffee. [00:07:28] And that was on my desk this morning as well. [00:07:31] A pair of blue jeans, which I'm wearing right now. [00:07:34] Nearly 2900 gallons. [00:07:37] The smartphone that my son just bought this past week for his birthday. [00:07:41] 3,400 gallons. [00:07:44] The average US household has a daily water footprint of 300 gallons. [00:07:50] So if you add it all up, the average person is using thousands of gallons of water a day. [00:07:55] Most of it is invisible. [00:07:58] So water is so critical to all these things I just mentioned, all these things that we like, all these things that we eat, all these things that we do. Why isn't it treated like a priority? [00:08:11] Take Federal spending in 2020, defense spending from the federal government. [00:08:17] 756 billion. [00:08:20] Transportation 105 billion. [00:08:24] Space exploration, 23 billion. [00:08:29] Water 3.2 billion. [00:08:35] So that means transportation is 30 times higher than water. [00:08:42] Yet clean water infrastructure has been one of the most transformative investments in history. Human history. [00:08:51] Life Expectancy in the US has increased 39 years since 1880, and half of that gain is linked directly to safe water and sewer systems. [00:09:04] So in short, we doubled our lifespan on the back of water investments. And now, because it works so well, we take it for granted we've forgotten where we came from. A century ago, in 1920, most many people didn't have flush toilets. [00:09:25] By the 1960s, the Cuyahoga river was so polluted that it literally caught fire. [00:09:32] Even today, waterborne illnesses cost an estimated 2 to 4 billion dollars in cost annually. [00:09:43] The bottom line is really nothing lasts forever. [00:09:47] All of these assets that we've built out over the past century are beginning to fail. [00:09:56] Our water infrastructure is aging. [00:09:58] Nearly 1 in 5 gallons of treated water is lost to leaks every day in the US that's $6.5 billion going down the drain, pun intended. [00:10:10] At the same time, new water demands are emerging. [00:10:16] Data centers are booming. We've talked about this. Fueled by things like AI. We didn't even think about this 10 years ago, let alone five years ago. In many cases, at least in the news, like we do today. [00:10:31] Over the last decade, companies have spent hundreds of billions of dollars building them. You hear the announcements is growing daily. By 2030, we water spending itself just to cool these facilities will be about $800 million annually. [00:10:49] Almost all of these are connected to local water systems that are under financial and asset related pressures. [00:10:59] There's competition for water utilities have other needs or other challenges to face. I already mentioned emerging contaminants and water quality. This just adds to that. [00:11:10] The dynamic of water management is in fact changing. The dynamic of demand is changing and that's upending traditional infrastructure. [00:11:22] A lot of this growth is happening in, I don't know, the wrong places where there is no water. Sun Belt states like Arizona, Nevada, Texas accounted for 80% of US population growth over the past decade. [00:11:37] Meanwhile, 36 million people depend on the Colorado river, which is in my last check was down to about 35% of capacity, if I recall. [00:11:51] Add climate into the mix. Since 1980, the US has had $403 billion storm disasters with damages totaling over $2.9 trillion. 81% of these are damages that have been water related. [00:12:10] Floods, droughts, large storm events. [00:12:15] If climate is a shark, water is the teeth. That's what I always say. [00:12:22] Utilities are doing their best, but the spending balance is shifting in the wrong direction. [00:12:29] And I'm not saying that it's necessarily their fault. It's our fault. Operating costs now make up nearly 70% of utility budgets, leaving less for renewing infrastructure, less for building the things that we need for the next generation. [00:12:49] So we're patching, we're not rebuilding. [00:12:52] In some US cities, households must work 20 hours at minimum wage just to cover their monthly water and sewer bills. [00:13:01] That's half a week's worth for basic access to drinking water and sewer services. [00:13:08] And then there's the politics, the real rub. If leaders can't agree on the fundamentals. [00:13:16] How can we expect consistent long term water policy strategies and approaches? [00:13:24] Political will or the lack of it is one of the greatest risks that we face. [00:13:31] It would be great to forego the showmanship for statesmanship and focus on water. [00:13:39] And here's the good news. [00:13:42] Solutions exist. Technology is not the problem. I say this over and over. The top 50 water companies in the world that Bluefield tracks generated $127 billion last year. The challenge is scaling up and prioritizing. [00:13:59] It's not the technology. [00:14:01] It starts with things like infrastructure renewal, the unglamorous really but essential work of replacing aging pipes and pumps and monitoring systems that are holding our systems together. [00:14:16] Then there's the corporate and industrial water management side of the equation. Companies are under pressure. It's dictating where they are building out facilities in some cases. [00:14:27] But these companies are under pressure from regulators and investors and their own operations. Quite honestly, they face operational risk and they need to get smarter about how they use their water. [00:14:40] They're investing more often in things like on site reuse, on site treatment, and they're managing water as a core business risk. [00:14:50] Look at things like midstream oil and gas. We've got numbers coming out on that that show it to be a $28 billion a year market. Just in managing water for upstream oil and gas in the U.S. [00:15:08] advanced treatment technologies, that's an area of growth. Why is that? Well, because reuse is happening. It's going to have to happen in places like California and Arizona, but also in places like Long Island, New York. [00:15:24] We're seeing some desalination happening, we're seeing some large scale, definitely in coastal regions, maybe outside of the US but these aren't futuristic ideas. They're being built, they have been built, they work. [00:15:39] And it's expensive water for desal. [00:15:41] But the path that we've taken, we're going to have to pay for it no matter what because we're not going to have an option. [00:15:49] Overlaying all of these things are things like sensors and smart meters and AI driven monitoring. The digital tools that help utilities and companies understand their systems in real time and cut losses. That that's an opportunity. It's going to have to happen because we need to be more efficient. [00:16:07] Agriculture, the biggest water user of all, is also seeing a shift through smarter irrigation, more energy, efficient pumping. [00:16:16] It's becoming critical in water scarce regions, whether it be Western U.S. whether it be southern Europe and places like Spain. This is what I would call the elephant in the room. [00:16:28] Agriculture that is what to do with it, how can it be managed? And there are slices of it where there is real opportunity. And when you look at this sort of the pie, as I like to say, there's a wedge, a significant wedge of opportunity in the agricultural pie that can be taken advantage of. [00:16:46] The other, it'll be harder to deal with, but you got to start somewhere. [00:16:50] And of course there's a question of financing, innovation, things like public private partnerships, which work in a lot of parts of the world, maybe not so much in others. [00:17:01] We're seeing design, build projects, we're seeing alternative ownership models. [00:17:06] These are accelerating projects in many cases. And a couple of these things that I've mentioned, it's been very active, we're doing a lot of analysis in these areas. And that's because there's real uptake, particularly among engineering and construction firms. [00:17:20] And it's driving projects that might have otherwise sat on the shelf for years or been slowed down just by not only cost and financing, but also just design and construction inefficiencies. [00:17:34] And then finally O and M or operations and maintenance, operations and services, contract operations. [00:17:42] These are becoming or, and are going to become a bigger piece of the puzzle. That's because utilities and companies are facing cost pressures and labor shortages that are increasingly driving them to turn to third parties to manage the treatment plants, the networks and even customer facing functions. [00:18:02] Things are becoming more technical. No one expected to be dealing with as much advanced treatment 20 years ago as we do today. That's how the system was built. Well, the system, the environment in which these systems exist is changing for a number of different reasons. Cynical or not so much so. It's just reality. And the tools and the capital are there. There's more disposable income now than there ever has been in the history of the world. Question is, are we willing to identify it and use it? [00:18:37] So let's look back to the question. [00:18:39] Why don't we care about water? [00:18:42] Maybe it's invisible, maybe it's because we've had the luxury of not thinking about it. [00:18:48] But unlike so many other resources, water is one thing we can't replace. There is no substitute. [00:18:57] Native back science tells us that sea levels are rising, storms are bigger and more frequent, droughts are more intense. [00:19:09] And we're sailing past the carbon and temperature targets. [00:19:13] Whether you believe in them or not, we're sailing past the targets. [00:19:19] But remember what I said earlier, water is the teeth and we now have to adapt. We're going to have to deploy things like reuse, desalination, digital systems, let alone all the other water quality treatment systems, all as a means of adaptation to the environment in which we live and create it. Or not. [00:19:45] So in a dark, messed up kind of way, there's no better time to be in the water sector. [00:19:53] That's today's episode. Thanks for listening. And remember, when it comes to the future of water, the choices we make today will decide whether there is for us tomorrow. And if you want to see the visuals and the data behind this discussion, you can download the full presentation on Bluefield Research's About Us page at bluefieldresearch.com, just go find the About Us tab. It's free and it literally takes one click of a button. [00:20:22] It's theirs for you to take I am Reese Tizzle and thank you for being part of the journey. Before we sign off, I don't say this enough and I want to thank all the people involved in making this and all the other conversations happen. [00:20:34] These include Mike Gaylor, Ryan Sullivan, Kelly Talbot, Steph Aldock, and all the other Bluefield analysts and water experts. Because I'd be talking myself more than this if I weren't talking to them the other 125 episodes. [00:20:50] If you're in Boston, Barcelona, New York, Chicago, San Francisco, Paris, let us know and we would enjoy the opportunity for a meeting. [00:20:59] Send a Note to water expertsluefieldresearch.com with any topic ideas you'd like us to discuss. Sometimes you do it. Not a lot, but sometimes. So I'm inviting you again. I'm going to do this every time. [00:21:11] Lastly, tell a friend about it because I like friends. [00:21:15] This podcast and these water industry insights have been brought to you by the one and only Bluefield Research. Learn more about us. Visit [email protected] until we talk again. [00:21:26] Be well, be safe and take care.